Five questions you should expect from talking to an investor
Investors are hard to come by. But during my second day at the Web Summit back in November, I got a rare opportunity. I was lucky enough to be invited for lunch with an investor from Oxford Capital Partners and a startup. The elderly founders were heavily pitching, and I was to be their witness.
The deal was that I get to sit in and just take notes. Like the fly on the wall kind of deal, which I immediately accepted. I decided to pay attention to the investor, and focus on his questions. Very often at LaunchBase we receive tons of questions about investors. They range from how to talk to investors, what should be expected of an investor, how to approach them and where can startups meet investors.
First question that came in after the summary of what their startup is about:
1. How will you make money with it? – I drew my own conclusion from the way they first pitched their app, but talking to my investor afterwards, my impression was confirmed. Though they both spoke for nearly 6 minutes, it was not clear what the business is. They presented the problem, and their ambition, but for an investor, the monetary value was not obvious. And in the after talk, I found out that most investors really are very busy and they prefer seeing a pitch that gives them insight into the money making part as soon as possible.
As pitching for investment is different than any other type of pitching, his second question was:
2. What is your traction? – It’s nice to talk about your WHY and your motivation for starting the business. But when you are 22 minutes into the conversation with an investor and you did not mention anything about the numbers of people whom your business is impacting, then you are again taking the path to the valley of wasted time. Investors don’t like that, especially at a crowded event where they get pitched even while standing in the bathroom queue.
My investor was a very patient person; he listened without interrupting, andkept his eye on the prize, not allowing the founders to suck him into a whirlpool of irrelevant details.
3. What is your expansion plan? Was his third question – The good thing that we got from their long and continuous pitch was to notice how they applied the lean startup principles. They both had long standing expertise in the industry they were in, they had a CTO who knew everything about the app – yeah, they had an app – and they started with the market that was familiar, in the home country of one of them.
However, when asked about their expansion plans, they were very surprised by the question. Now, my hypothesis was that they really did not see the question coming, but my investor had a slightly different after comment. His feeling was that they actually didn’t think so much about their expansion plan and this could have two reasons. One was that they are just not that further along and they were being cautious with the future of the business; or, that they were not very confident they can grow their startup in a different market!
When the conversation reached this point I was afraid the investor would lose interest. Instead, he just gave them a lifeline asking:
4. What does your market research say? Meaning…Which European country would be more likely to adopt the idea?
That completely changed the game, and made me realize the guys simply did not expect to have such an in depth conversation with an investor, and that is why they seemed to have lost it a bit before. But now they were back on their game. They explained the numbers they had and the way they conducted their research, they also gave reasons why they previously answered “maybe Spain”. Investor seemed satisfied with the answer and followed up with his final question.
5. How much are you looking to raise? – At this point you could feel the tension release on the foreheads of my elderly founders. I also decided to allow the money discussion go on without my curious eyes and ears and left them to their affairs.
The adventure of being at Websummit all together was incredible. But to have the chance to witness how startup founders talk to investors is a priceless experience!
P.S.: They asked for anything in between 500k and 1 mil.